The NBU and the Government of Ukraine have signed a Memorandum between the Cabinet of Ministers of Ukraine and the National Bank of Ukraine on Cooperation to Achieve Sustainable Economic Growth and Price Stability.
This document will underpin the joint efforts of these institutions in achieving price stability as a prerequisite for sustainable economic growth in Ukraine. In addition, cooperation between them will further improve the expectations of households and businesses, including inflation expectations, and increase investor confidence in the Ukrainian economy.
The signing of the memorandum by Ukraine’s Prime Minister Oleksiy Honcharuk and NBU Governor Yakiv Smolii signifies that the institutions share the vision that it is important to pursue low and stable inflation to support economic growth.
“Low and predictable inflation will make it possible to cut interest rates and boost lending in the medium term. Expanding businesses’ and households’ access to cheap financial resources will, in turn, be the engine that will reboot the economy and accelerate its growth. This is precisely the goal that will unite our two separate institutions,” said Prime Minister Honcharuk.
The NBU will continue to pursue a monetary policy aimed at reducing inflation to the target of 5% ± 1 pp. For its part, the Government takes responsibility to support the reduction of inflation to the 5% target through a sound economic policy.
- predictable budgetary policy aimed at ensuring the sustainability of public finances
- public debt management intended to cut debt service costs
- development of the financial market
- management of state-owned banks in line with the predetermined strategy, and the gradual reduction of the state’s share in the banking sector to 20%
- effective antitrust policies to create a competitive environment for pricing mechanisms and to safeguard the public from abuse by monopolists
- transparent privatization, and improvement of the efficiency of state-owned companies
- transparent and predictable policies in the area of administered prices and tariffs
- dedollarization of the economy.
At the same time, the NBU stands ready to support the economic policy of the Cabinet of Ministers. That includes ensuring the sustainability of public finances and expanding businesses’ and citizens’ access to significantly cheaper financial resources, as long as doing so does not prevent the attainment of price and financial stability objectives.
Coordination of efforts
“The effective coordination of economic, fiscal, and monetary policies is crucial to ensuring price stability. Many countries have followed this path by establishing close cooperation between their public authorities. As a result, these nations have shown considerable resilience to financial and economic crises in recent decades. Ukraine has joined these nations today,” said NBU Governor Yakiv Smolii.
In Ukraine, the coordination between the Government and the central bank will take the form of regular consultations between the leaderships and professionals of the public authorities on issues that include:
- strategic issues of monetary and fiscal policy in terms of ensuring price and financial stability during meetings of the Financial Stability Council
- analysis of current economic conditions, macroeconomic forecasts, attainment of inflation targets, development of financial markets, liquidity forecasting, etc.
- discussion of fiscal policy parameters and sustainability of public debt, in particular during the preparation of the Budget Declaration and the drafting of the State Budget of Ukraine.
In addition, policy coordination will be achieved through the regular sharing of information.
First, the NBU will regularly inform the Government and the public about its macroeconomic outlook, the attainment of inflation targets, the factors behind the development of inflationary processes, and the measures aimed at achieving these targets.
Second, the Cabinet of Ministers will inform the central bank in advance about planned changes in administered prices and tariffs and provide forecasts of the movement of funds in government accounts and plans for the implementation of public borrowing.